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Cryptocurrency and Investing

You’ve likely heard of cryptocurrency in the news, especially Bitcoin, which has made thousands of early investors into millionaires. But what is cryptocurrency? And how do you go about investing in it? This article will give you a birds-eye look at the phenomenon and how you can get in on the action.

 

What is cryptocurrency?

Like traditional currency, cryptocurrency is a form of payment that can be used to purchase goods and services. What sets cryptocurrency, or crypto, apart is that it isn’t backed by government agencies, doesn’t exist in a physical form, and is stored through a decentralized system known as blockchain. Blockchain is an extremely secure way to store information, which is one reason that crypto has gained so much popularity.

 

One of the reasons cryptocurrencies are exploding in popularity is that they’re seen as the future of commerce, and many supporters point to the fact that it takes away the middleman: banks.

 

What are the different types of cryptocurrency?

As mentioned earlier, Bitcoin is the big name in crypto, but there are hundreds of others out there.As of April 2021, the total value of all cryptocurrencies is over $2 trillion. About half of that value is just Bitcoin alone, but the top five are also worth serious money:

  1. Bitcoin ($1.2 trillion)
  2. Ethereum ($263.4 billion)
  3. Binance Coin ($87 billion)
  4. XRP ($81.8 billion)
  5. Tether ($45.4 billion)

 

(Source: https://www.nerdwallet.com/article/investing/cryptocurrency-7-things-to-know)

 

How do you invest in cryptocurrency?

To buy any cryptocurrency, you need to have what’s called a wallet, which is an app that solely exists online to hold your money, just like a physical wallet holds your cash. With this wallet, you can then create an account on a cryptocurrency exchange and trade traditional currency for crypto relatively easily, though there are some cryptos that only accept other cryptocurrency as payment. Two popular cryptocurrency trading exchanges in the United States are Coinbase and Robinhood. Coinbase gives users both a wallet and access to an exchange, while Robinhood is first and foremost a place to buy and sell stocks, but also offers crypto trading, as well.

 

What are the downsides of cryptocurrency?

Like anything online, no matter how safe it is, somewhere along the line someone will figure out how to hack their way into the system and steal and destroy files. Crypto isn’t immune from this, but so far, blockchain has proven to be the safest and most secure technology out there.

 

Another downside is their legality. While they’re legal in the United States, countries like China have completely banned their exchange and use. Countries where it is legal can change the laws at any time, leaving those who own, say, millions in Bitcoin in limbo.

 

Final thoughts on cryptocurrency and investing

So, should you invest in cryptocurrency? That’s up to you. Cryptos like Bitcoin have absolutely skyrocketed in the past decade, and those who got in early and paid pennies per Bitcoin and didn’t sell are easily millionaires now. It’s not for everyone, though. You must be willing to accept a certain amount of risk, just like with the stock market.


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References

https://www.prescouter.com/2019/11/disadvantages-of-cryptocurrencies/

https://www.coinbase.com/learn/crypto-basics

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